Proposed Borrower Defense Rule Shortchanges Defrauded Students, Ends Accountability for For-Profit Colleges

WASHINGTON, D.C. – Today, the U.S. Department of Education released a draft proposal to overhaul the Obama Administration’s Borrower Defense to Repaymentrule. The revision would alter how students secure loan forgiveness when institutions fail to deliver promised requisite skills and knowledge. Under the new proposal, student borrowers would qualify for corrective action only when they could document institutional misrepresentations related to the program of study. Further, borrowers would be required to prove that institutional misrepresentations were made with knowledge, intent or a reckless disregard for the truth. The draft also further insulates bad institutional actors from accountability—making it harder for defrauded students to gain relief and taxpayers to recoup the losses caused by the abusive behavior.

If finalized, the rule will take effect July 2019.

In response, Ashley Harrington, a Policy Counsel with the Center for Responsible Lending Counsel released the following statement:

“This proposed draft reads more like a roadmap for institutions seeking to abuse students and avoid accountability and transparency rather than a plan to protect students and taxpayers. It ignores the pleas of more than 100,000 students, consumers, and taxpayers, as well as 31 state attorneys general who directly urged Secretary DeVos to stop shielding institutions and private companies.

“Under this rule, the Department goes further than any proposal discussed at negotiated rulemaking, proposing that relief be limited to borrowers in default in addition to very limited access to relief. A better solution to this growing financial burden would be preventing as many defaults as possible and holding institutions to a higher standard. Millions of consumers and billions of taxpayer dollars are at stake. Early and effective intervention would spare borrowers the multiple ramifications of loan default, particularly to their credit scores and resulting higher costs for future credit.

“The previous Borrower Defense rule was created to protect students and taxpayers from deceptive practices like that of ITT Tech and Corinthian Colleges that abruptly closed their doors after widespread abuses put them on the brink of bankruptcy and jeopardized the futures of thousands of students. This proposal shortchanges borrowers and will only inflate the growing $1.5 billion student loan debt crisis.”

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For additional information or to schedule a media interview, contact Charlene Crowell: charlene.crowell@responsiblelending.org.